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FLORIDA CORPORATIONS PROFESSOR SHAWN J. BAYERN

FLORIDA STATE UNIVERSITY COLLEGE OF LAW

CHAPTER 1: FORMATION OF CORPORATIONS

A. Pre-incorporation Transactions

• A ________________________________ of a corporation is someone who collects whatever is

necessary for the business to get up and running and files the documents with the state.

• Promoters ______________ be liable for pre-incorporation transactions as long as the person

they are entering into a contract with has no __________________________________________

that the corporation does not exist.

Example 1: Promoter Paula plans to set up a corporation that sells cheap

washable polyester suits. Before actually creating the corporation, she enters a

contract with a supplier promising that the corporation will pay $50,000 for

several tons of some polyester fiber. If the supplier does not know that the

corporation does not yet exist, Paula will be personally liable on the contract.

• Corporations, by default, _________________ liable for pre-incorporation transactions.

Example 2: On the facts of Example 1, is the corporation liable on the

contract once Paula creates it? By default, the answer is no.

o Exception 1: The corporation can _________________ the transactions that the promoter

entered into.

o Exception 2: There can be a __________________________________ (the parties replace

the old contract with a new contract that makes the corporation liable).

B. Incorporation

1. Filing

To form a corporation, the incorporators must file the _________________ of incorporation

with the Department of State.

2. Required Information

The articles of incorporation must include several pieces of specific information:

a. _________________ of the corporation

Exam Tip 1: “Corporation names” is a topic that has been tested before because it is relatively straightforward.

2 | © 2017 Themis Bar Review, LLC | FL Corporations

▪ Must contain one of three specific words:

• __________________________________;

• __________________________________; or

• __________________________________

• Can be abbreviated (i.e., corp., co., or inc.)

Example 3: ABC Corporation is a valid corporate name. "ABC" is not.

▪ The name must not imply either:

• Affiliation with a _____________________________________________________;

• That the corporation is organized for an __________________________________

purpose; or

• That the corporation is a ______________________________________________.

Example 4: “Central Intelligence Agency.” Is this valid? ______________

It suggests an affiliation with a governmental agency and does not contain the

word "company," "corporation," or "incorporated."

Example 5: “Central Intelligence Agency, Inc.” Is this valid? _____________

It suggests a governmental affiliation.

Example 6: “The ABC Corporation.” Is this valid? _________________

Example 7: “John Company Smith.” Is this valid? _________________

Though it contains the word "company" it does not indicate that the entity is a

corporation.

▪ The name must be __________________________________ from other entities'

names. The following are insufficient to distinguish the name:

• A suffix;

• A definite or indefinite article;

• The word “and” or the symbol “&”;

• The singular, plural, or possessive form of a word;

• An abbreviation of a word; or

• A punctuation mark or symbol.

Example 8: An existing company is named "Washable Polyester Suit Company

Inc." Is it permissible to name a new company "The Washable Polyester Suit

Company Inc."? _________________ "The" is insufficient to distinguish the

name.

Example 9: What about "Washable Polyester Suits Company Inc.?"

_________________ Changing to the plural is insufficient.

FL Corporations | © 2017 Themis Bar Review, LLC | 3

Example 10: What about "Washable Polyester Suits! Company Inc.?"

_________________ Adding a punctuation mark is insufficient.

Example 11: What about "E-Z Wash Polyester Suit Company"

_________________

b. Series of ___________________________________________________

▪ Street address (and mailing address, if different) of the corporation’s

___________________________________________________

▪ Street address of __________________________________ office, and the company's

registered agent

▪ Also, it must list names and addresses of each incorporator/promoter.

c. Number of ___________________________________________________

Example 12: “This corporation is authorized to issue 10,000 shares.”

d. Number of __________________________________

And there must be at least 1 director.

3. Additional Information

The articles of incorporation may include further information:

o Any _________________ provisions concerning how the business is to be operated or

managed

o List of __________________________________

o __________________________________ of shares (i.e., the share price below which the

corporation cannot issue the shares)

Exam Tip 2: The concept of “par value” has been tested in the past. Florida has abolished a requirement of par value, but a corporation may choose to list a “par value” for all shares or some classes of shares in the articles. If it does, then the corporation cannot sell those shares for less than their par value.

Editor's Note 1: As Professor Bayern notes at the beginning of Chapter 2, the articles of incorporation may also limit the duration of the corporation’s existence. Unless the articles set a limit on the corporation’s duration, the corporation has perpetual existence.

4. Defective Incorporation

o If the Department of State accepts and files the articles, it is

__________________________________ proof that the corporation has been successfully

established, even if there is some defect.

o Courts may still find a __________________________________ corporation if there was a

__________________________________ effort to file the articles.


o Similarly, if entity acts or holds itself out as a corporation, it cannot deny (i.e., is “estopped”

from denying) it is a corporation.

Example 13: A supplier makes a contract with a group of people holding

themselves out as a corporation, even though they have never properly filed to

set up a corporation. Neither party can use the lack of filing as a defense to a

breach-of-contract lawsuit.

C. Corporate Purpose and Ultra Vires Acts

• Default rule: A Florida corporation’s “purpose” is to engage in any and all _________________

business.

o The articles of incorporation can _________________ the default corporate “purpose.”

Example 14: A corporation’s articles can state: “The purpose of this

corporation is to buy and raise chickens.” If the corporation then wants to buy

and raise cows, it cannot do that.

• If a corporation takes an act __________________________ its purpose, the act is “ultra vires.”

• Three types of plaintiffs may sue in response to an ultra vires act:

o ___________________________________________________

Example 15: A shareholder may object that the corporation took an action

that, under the corporate charter, the corporation was never intended to take.

o The ___________________________________________________

Example 16: A corporation can sue one of its managers.

o The __________________________________

Example 17: The state may sue in advance to stop a corporation from taking

an illegal action.

• Remedies in a challenge to an ultra vires corporate action:

o In a state action, a court may __________________________________ the corporation or

__________________________________ the action.

o In a shareholder lawsuit, the court may __________________________________ the action

and award __________________________________.

▪ But not damages for anticipated profits

D. Miscellaneous Topics

• Corporate bylaws provide further information regarding how the corporation is going to be

managed.

• Hierarchy of authority: STATUTES over ARTICLES OF INCORPORATION over BYLAWS


o Bylaws must be consistent with the articles of incorporation; if the bylaws contradict the

articles, the __________________________________ govern.

o If the articles contradict the statute, the __________________________________ governs.

• Florida corporations pay an income tax of _________________% to Florida after an exemption

of __________________________________ of income.

o They may also pay federal tax.

• Florida corporations must file an __________________________________ with the Department

of State. If they fail to do so, theoretically, they may be dissolved.

• A company that fails to file an annual report may not _________________ or

__________________________________ a lawsuit until the report is filed.

CHAPTER 2: CORPORATE STOCK AND SECURITIES

A. Stock

1. Basics

o A corporation __________________________________ have shares of stock.

o Shares of stock may be divided into different __________________________________.

o There are two rights that at least one class of shares needs to have:

1) Final __________________________________ power

Example 18: Elect the Board of Directors

2) Ability to receive the _________________ assets when a corporation dissolves and

winds up

• These two rights need not be held by the same class(es) of shares

• Not every class of shares needs to have these rights (e.g., may have voting stock and

non-voting stock)

o Most commonly, there is a single class of shares.

o By default, every share has _________________ voting power and has an equal right to

receive the assets of the corporation upon dissolution.

Example 19: By default, if a corporation has a total of 100 shares, someone

who owns 20 shares would have 20% of the votes of the corporation and would

be entitled to receive 20% of the company's assets upon dissolution.

o By default, the __________________________________ choose to issue shares.

o The articles of incorporation can authorize the __________________________________ to

issue shares


2. Issuance by the Corporation

o Must a corporation issue all the shares that its articles of incorporation authorize?

_________________

Example 20: A company may be authorized to issue 10,000 shares, but only

2,000 shares may actually be issued. The rest of the shares may be issued in the

future--for example, if the company wants to raise more money.

o By default, the directors determine whether __________________________________ for

issued shares is __________________________________.

Example 21: A new company is considering issuing shares to a variety of

people who are providing property and services to the company. The directors

may authorize the issuance of shares in exchange for many types of

consideration: tangible property, intangible property (e.g., intellectual

property), cash, securities, services, or promissory notes.

3. Stock Subscription

o Essentially a pre-incorporation commitment to fund the corporation

o A pre-incorporation subscription for shares is by default irrevocable for

__________________________________.

▪ Exceptions:

• Parties can agree to a different period; or

• Subscribers can __________________________________ release each other.

o A pre-incorporation subscription must be __________________________________ to be

enforced.

o If a subscriber defaults, the corporation has the right to:

▪ Try to _________________ what the subscriber promised to contribute; or

▪ Sell the _________________ to someone else and recover the difference as damages.

4. Certificates

o In Florida, stocks need not be represented by certificates.

o Instead, a record is kept to provide to shareholders.

5. Preemptive Rights

o By default, in Florida, shareholders _________________ have preemptive rights (i.e., right

of first refusal) to acquire the corporation’s _________________________________ shares.

o By default, a corporation may issue shares that dilute the ownership of the current

shareholders.

o However, the articles of incorporation may provide preemptive rights.


6. Distributions

o A distribution is a transfer by the corporation to the shareholders of money or property.

o The most common form of a distribution is called a ________________________________.

o __________________________________ can authorize distributions, subject to restrictions

in the statute and the articles of incorporation.

Exam Tip 3: A testable area on the subject of dividends would be statutory restrictions on issuing dividends.

o Insolvency tests: A corporation may not make distributions if:

▪ Broad test: The company would not be able to pay the _________________ that arise in

the usual course of business.

▪ More specific test: It would immediately cause the company to have fewer

_________________ than its current liabilities.

Example 22: A company has $10,000 in its bank account and has just entered

into a contract to buy $10,000 worth of supplies. It may not declare a $10,000

dividend for the shareholders.

Example 23: A company has $1 million in assets and $800,000 in liabilities. It

may not issue a distribution of $500,000.

o Some classes of shares may have priority in receiving distributions; these shares are called

__________________________________ shares, compared with

__________________________________ shares.

o Priority of claims upon liquidation of the corporation:

1) Creditors

2) __________________________________ shareholders

3) __________________________________ shareholders

o Record date: If the board of directors does not decide on a dividend record date, the date

will be the date the directors _________________ the ______________________________.

B. Sale of Securities by Shareholders

1. Restrictions on Shareholders’ Sale of Shares

o General Rule: Easy to agree to restrictions on the sale of shares

o Any of the following can include restrictions on the sale of securities by shareholders:

▪ Articles of __________________________________;

▪ Bylaws;

▪ Private agreements among __________________________________;

▪ Agreement between shareholders and the __________________________________.


Example 24: The bylaws of a company prevent the founders from selling their

shares until December 31, 2020. Is this restriction enforceable? [___________]

Example 25: The three founders of a company agree not to sell their personal

shares to anyone except each other until the company raises at least $1 million

in outside funding. Is this restriction enforceable? [_________________]

o Which of the following requirements are valid restrictions on share transfers?

▪ A requirement to offer the shares to the corporation first before selling them to others

[_________________]

▪ A requirement to offer the shares to particular third parties before selling them to

others [_________________]

▪ An obligation that the corporation acquire the shares whose sale is proposed

[_________________]

▪ A requirement that the corporation approve the sale [_________________]

▪ A requirement that a third party approve the sale [_________________]

▪ An outright prohibition of sales and transfers [_________________] BUT

• Exception: Restriction cannot be __________________________________.

Example 26: A corporation's charter says that no shareholders may sell shares

to anyone until an asteroid wipes out all life on earth. This is probably an

unreasonable restraint on alienation, because it effectively prohibits all sales of

the shares.

▪ Third parties (e.g., buyers) ARE NOT bound by transfer restrictions unless they are aware

of them.

• Restrictions on a stock certificate may provide

__________________________________ notice.

2. Securities Fraud and Insider Trading

o Rule 10b-5 is an SEC rule that governs the fraudulent purchase or sale of securities.

o Insiders to a corporation (e.g., directors, managers) may be liable for trading using material

__________________________________ information under Rule 10b-5.

o Rule 10b-5 also applies to:

▪ __________________________________ insiders like lawyers for the corporation;

▪ People who __________________________________ the secrets of the corporation if

they have a duty to the corporation; or

▪ People who have received a _____________ about inside information about the stock.

o Traders in possession of inside information about a corporation that is material are

__________________________________ to have used it while trading unless they are

selling their shares according to a __________________________________ plan of sale.


o A trader is under a duty to avoid using __________________________________ inside

information.

o Even in the absence of inside information, corporate insiders may not legally retain

“__________________________________” profits.

Exam Tip 4: These rules effectively only apply to public shares from publicly traded corporations.

Example 27: A corporate treasurer, in his free time and using no special private

information, "day trades" his company's stock, earning $2000. He must return

this money, regardless of his motives.

CHAPTER 3: SHAREHOLDER RIGHTS AND DUTIES

A. Shareholder Meetings

• Florida statutes require Florida corporations to hold an _________________ shareholder

meeting.

• In addition, the board of directors or shareholders who own _________________ of the voting

shares may call __________________________________ meetings.

• Shareholders generally must receive between ___________ and ___________ days’ notice

before a meeting.

o Special meetings may not go beyond the purposes noticed for the special meeting.

• Shareholders may waive notice of the meeting by __________________________________ or

by sending a written confirmation that they had notice.

• Instead of a meeting, shareholders may take action by unanimous

__________________________________.

• Meetings may be held in __________________________________ (including out-of-state

locations).

o By default, the location is the company’s __________________________________.

B. Shareholder Voting

• By default, all shares of a corporation are entitled to _________________ vote.

• A corporation _________________ vote its own shares, but may generally vote shares that it

holds in another corporation.

• By default, a quorum of _________________ is necessary before a vote may be taken at a

meeting.

o The articles of incorporation may __________________________________ the quorum

requirement to any level.

o The articles of incorporation may decrease the quorum requirement, but not to less than

_________________ of the shares entitled to vote.


Example 28: A corporation has 3000 shares. The articles may say that only

1200 shares are needed for quorum, but it cannot say that 800 shares are

enough for quorum.

• The articles of incorporation may require that majorities in multiple classes of shares approve

before action is taken on a matter.

• Voting for directors by default occurs by __________________________________ voting.

o With straight voting, a majority shareholder, or one who has more votes than any other

single voting shareholder, can win every seat on the board.

• However, the articles of incorporation can specify that voting is

__________________________________.

o Under cumulative voting, shareholders can pool or focus their votes on some of the board

seats, thereby winning those seats.

o The effect is that a __________________________________ shareholder can elect a

minority of the board, rather than none of the board.

Example 29: There are two shareholders, A and B. A owns 65% of the shares of

the corporation and B owns 35% of the shares. There are three seats on the

board of directors. Under straight voting, A will elect the entire board. Under

cumulative voting, A can elect two seats, and B can elect one seat by focusing

all of the votes that B gets on the same person.

• Florida statutes neither adopt cumulative voting by default nor mandate cumulative voting. But,

they do allow corporations to _________________ cumulative voting in the

__________________________________.

• May also stagger the terms of office:

o By default, board seats _________________ staggered; theoretically, every election term,

each board member could lose their seat.

o Staggering the terms means that some board seats come up for election in the first year,

some in the second year, etc.

o The effect is to __________________________________ a change in corporate control.

• Agreements to pool votes (i.e., pooling agreements):

o Must be in __________________________________

o Have no _________________ limit

o Does not need to be filed with the corporation

o May be ___________________________________________________


C. Shareholder Agreements

• Shareholders in corporations with _________________ or fewer shareholders may

__________________________________ enter into agreements that radically change the

corporate structure. They can:

o __________________________________ the board of directors

o Limit the powers of the board of directors

o Permit one shareholder, or any group of them, to exercise corporate powers

D. Inspection Rights

• Shareholders may inspect corporate records if their purpose is to do anything that relates to

their ___________________________________________________.

• The corporation may charge the shareholder reasonable fees.

• Inspection is limited to ___________________________________________________ at the

corporation’s main office

• If the corporation refuses inspection, a court may summarily _________________ inspection or

order inspection on an ___________________________________________________________.

E. Shareholder Suits

There are two types of shareholder actions: _________________ and ________________________.

• Direct - Suit by shareholders against the corporation in their own right

Example 30: A shareholder is improperly denied the right to vote at an annual

meeting.

Example 31: A shareholder did not receive a dividend that all other

shareholders received.

• Derivative Suit: If the company has suffered a harm, but will not sue, a shareholder can step

into the shoes of the corporation.

o If there is recovery in a derivative suit, it goes to the corporation.

Example 32: A shareholder wants the corporation to recover money that a

manager stole from the corporation.

o Before a derivative action is filed, a shareholder must make a “demand” on the corporation

unless:

▪ Demand would be __________________________________; or

▪ Delay would lead to __________________________________.

o Only shareholders who own shares at the time of __________________________________

(or those who receive shares by operation of law, e.g., inheritance) may bring a derivative

action.


o Also, such shareholders must __________________________________ to be a shareholder

throughout the litigation.

o A plaintiff shareholder in a derivative action may seek

__________________________________ from the corporation for litigation expenses as

long as the corporation receives _________________.

o A corporation that is the defendant in a derivative action can seek reimbursement from the

plaintiff for litigation expenses if the plaintiff had no

___________________________________________________ to bring the action.

F. Limited Liability

• In general, shareholders _________________ liable for the debts of a corporation.

• An exception to this principle is known as “disregarding the corporate _________________” or

“piercing the corporate _________________.”

G. Shareholder Duties to Each Other

• Shareholders generally _________________ have duties to other shareholders.

CHAPTER 4: DIRECTORS AND OFFICERS

A. Structure of the Board of Directors

• A director must be a __________________________________ of at least _____________ years

of age.

o A corporation _________________ be a director of another corporation because a

corporation is not a natural person.

o A six-year-old _________________ be a director of a corporation because not at least 18

years of age.

o A resident of Georgia _________________ be a director of a Florida corporation; there is no

residency requirement.

o Need not be a _________________ of a corporation to serve as one of its directors

• A board must have at least _________________ director(s), by default.

B. Operation of the Board of Directors

1. Terms and Compensation

o Recall that directors’ terms may be __________________________________.

▪ If they are not, then typically each director has a term that expires at the next

___________________________________________________.

o A director need not stop serving as a director immediately upon expiration of his or her

term.


▪ The statute says: "Despite the expiration of a director’s term, the director continues to

serve until his or her successor is ________________________ and

_________________________ or until there is a decrease in the number of directors."

Example 33: John is a director of a company. His term expires on December

31. He continues to serve as a director, exercising all the powers and duties

appropriate to that role, until his successor is appointed.

o By default, a director may be removed ___________________________________________

cause.

▪ Bylaws may require that a director be removed only ___________________________.

Example 34: By default, a majority of shareholders decide that they don't like

Barbara's mannerisms at board meetings. They can remove her without giving

a reason.

Example 35: A corporation's articles say "Directors may be removed only for

cause." A majority of shareholders decide they do not like Barbara's speech

patterns at board meetings. They cannot remove her for this reason. But if she

commits a crime, they can then remove her.

o By default, who determines how much directors are paid? ___________________________

2. Meetings and Voting Requirements

Exam Tip 5: By statute, meetings of directors need not be held in person, as long as they can simultaneously speak with each other.

a. Quorum and voting issues

▪ By default, _________________ of the directors authorized in the articles/bylaws

constitute a quorum for directors’ meetings.

▪ A quorum is the minimum number that must be present for a meeting to be valid.

Example 36: A Florida corporation's board of five directors holds a meeting

where two directors are present. This is not a valid meeting because a quorum

is not present.

▪ The quorum requirement is based on the number of directors authorized by the articles

of incorporation or the bylaws, not the number actually serving as directors.

Example 37: A Florida corporation's articles of incorporation provide for a

board of ten directors. In the last year, four of them have died, leaving six

directors and four vacancies. Five directors will be required for a quorum

because the vacant seats are counted when calculating the number required for

a quorum.


▪ May increase the quorum requirement freely, but may not reduce the quorum

requirement below _________________ of the number of directors prescribed in the

articles

Example 38: A Florida corporation's articles of incorporation provide for a

board of ten directors. The board may increase the number required for a

quorum to sev en, but may not reduce it to require fewer than three

directors.

▪ A __________________________________ of the directors present may adjourn any

meeting to another time and place, even if they do not constitute a quorum.

b. Meeting requirements

▪ The location of a board of directors’ meeting can be ____________________________.

▪ By default, there is no _________________ requirement for regular board meetings.

▪ Special board meetings need at least _________________ days’ notice of the date, time,

and __________________________________ of the meeting.

• The notice need not describe the __________________________________ of the

special meeting unless required by the articles of incorporation or bylaws.

Example 39: A Florida corporation's board of five directors holds a meeting

where two directors are present in a corporate satellite office in Georgia, one is

in France and participates by phone, and the other doesn't bother to call in.

This is a _________________ meeting.

C. Committees

1. Unless the articles or bylaws provide otherwise, the board may establish

__________________________________ to act for it.

o By default, a __________________________________ of the _________________ appoints

people to committees and specifies what their powers will be.

o Committees must have at least _________________ member(s).

o Committee members must be __________________________________.

o By default, the board _________________ remove committee members at will.

2. The board _________________ delegate its powers and duties to a committee, EXCEPT

powers to:

o Approve or recommend actions to shareholders;

o Fill __________________________________ on the board of directors;

o Adopt, amend, or repeal the _________________;

o Authorize or approve the reacquisition of shares unless pursuant to a general

__________________________________ or __________________________________

specified by the board of directors; or


o Authorize or approve the issuance or sale or contract for the sale of shares, except with

specific limitations approved by the board.

D. Duties of the Directors

Directors have a duty to perform their role in __________________________________ and to act

with __________________________________ care.

1. Duty of Care and the Business Judgment Rule

o A director is legally entitled to rely on __________________________________ received

from officers and employees, skilled professionals, and

__________________________________ as long as the director believes the information to

be reasonably reliable.

o The “business-judgment rule” changes the standard by which the duty of

_________________ is reviewed.

▪ Under the business-judgment rule, a director is liable for a breach of care only if they

___________________________________________________ the interests of the

corporation or otherwise engage in _____________________________ misconduct.

Example 40: Three members of the board open a new factory which ends up,

two years later, causing the corporation to lose $20 million on a failed business

venture. A shareholder wishes to sue the directors, arguing that the board

members made a stupid decision. Normally the shareholder cannot argue this

because the directors are protected by the business-judgment rule.

Example 41: Same facts, but the directors were hoping to damage the

corporation or did not even read the proposed plans concerning the factory.

Now the plaintiff may have a claim. However, this is very rare.

▪ Directorial conflict-of-interest (self-dealing) is not protected by the business judgment

rule.

2. Duty of Loyalty and Self-Dealing

o Ordinarily, directors violate the duty of _________________ by transacting with the

corporation themselves.

Example 42: Jane is on the board of directors of a real-estate corporation. She

notices that the corporation is selling an office building that she thinks is more

profitable than the corporation realizes, so she buys the property at the

corporation's asking price using a shell corporation. This _________________ a

violation of the duty of _________________.

o Directors may engage in certain conflict-of-interest (self-dealing) transactions if they follow

the correct procedures.


o There are three __________________________________ under which directors may avoid

violating the duty of loyalty:

▪ They make a full disclosure of their interest and a ______________________________

of the disinterested directors approve;

▪ They make a full disclosure of their interest and the _____________________________

approve; or

▪ The transaction was fair and reasonable to the _______________________________.

3. Duties of Officers

o Officers owe very similar duties as the directors.

o Moreover, officers are agents and employees of the company and have the normal duties of

agents and employees.

E. Indemnification of Directors and Officers

• Corporations MUST indemnify directors for reasonable costs incurred in

__________________________________ defending a claim.

• Corporations MAY indemnify directors for all breaches of duty of _________________ as long as

they acted in __________________________________.

• Corporations MAY NOT indemnify directors for breaches of the duty of _________________.

Note 1: The same answers apply for officers as for directors.

• Indemnity may take the form of __________________________________ of litigation expenses

or liability __________________________________.

Editor's Note 2: Note that liability insurance can cover all awards against a director as well as expenses incurred by her, regardless of whether the corporation could otherwise indemnify the director for such amounts.

CHAPTER 5: MERGERS AND TERMINATION

A. Statutory Mergers

1. Long-form Merger

o A merger is a combination of two or more corporations.

o Three requirements:

1) __________________________________ of both companies must approve the merger;

2) A majority of the voting power of the __________________________________ of both

companies must approve the merger; and

3) Required __________________________________ must be filed with the state.

Example 43: Corporation A and Corporation B wish to merge under Florida

statutes. This can occur only if (1) the directors of both corporations approve


the merger, (2) the shareholders of both corporations approve the sale, and (3)

merger documents are filed with the state.

2. Short-form Merger

A merger between a parent and a __________________________________ may not require the

approval of either corporation’s __________________________________ when the parent

company owns at least _________________ of the voting power of each class of outstanding

stock in the subsidiary.

Example 44: Corporation A owns 90% of corporation B. For tax reasons, it

wishes to merge Corporation B into itself. This transaction _________________

require shareholder approval.

3. Liabilities

The liabilities of a corporation __________________________________ merger.

B. Asset Acquisition

In a sale of substantially all of the corporation’s assets, outside the regular course of business:

• The __________________________________ must propose the sale; and

• The __________________________________ must approve the sale.

Example 45: Without using the formal merger statutes, a corporation sells all

its warehouses, inventory, real estate, and contracts to another corporation.

Even though this is not a formal merger, it requires approval by the selling

corporation's directors and shareholders.

C. Appraisal

• A shareholder who is entitled to vote on a merger or acquisition may generally seek

__________________________________ rights.

• Allows the shareholder to have their shares valued and get paid for them

Editor's Note 3: The shareholder is not entitled to an “independent” valuation. After receiving proper notice, the corporation offers a “fair value” for the shares. If the shareholder does not agree on the price, the shareholder must make a counter estimate of the fair value.

• Normally, the objecting shareholder must vote "no" on the merger in order to trigger the right.

• Appraisal rights are ordinarily not available when shareholders can easily sell their shares in a

market (e.g., for public companies or for companies with “2,000 shareholders and . . . the

outstanding shares . . . have a market value of at least $10 million”).

D. Termination

1. Process

o The first step in a corporation’s end-of-life is called a _______________________________.


o After a corporation is dissolved, there is a period of time called a

__________________________________ where the corporation winds up all the affairs of

its business:

▪ Sells assets

▪ Makes __________________________________

▪ Collects on debts

▪ Pays __________________________________

o After winding up is completed, there is an event called ______________________________,

and the corporation ceases to exist.

2. Order of Distributions

o _________________ take priority over _________________ shareholders, and

_________________ shareholders take priority over _________________ shareholders.

▪ Creditors have contract or tort claims against the business - includes

__________________________________

Editor's Note 4: Creditors also include any shareholders who are bona fide creditors of the corporation in addition to holding stock. Such creditor shareholders will receive distributions equal to the debt owed them by the corporation before the preferred shareholders receive distributions for their stocks.

E. Dissolution

1. Voluntary

o The __________________________________ propose and the

__________________________________ approve dissolution.

2. Involuntary

o Elements in proceedings brought by the Florida Department of Legal Affairs:

1) The corporation achieved its charter through _________________; OR

2) The corporation is engaged in a continuing pattern of abusing its

__________________________________

o Elements in proceedings brought by a shareholder in any corporation:

1) Directors are __________________________________ and it causes injury; OR

2) __________________________________ deadlock.


o Elements in proceedings brought by a shareholder if there are 35 or fewer shareholders:

1) Assets are being _________________, leading to injury; OR

2) Directors or those in control are acting __________________________________ or

__________________________________.

o Elements in proceedings brought by a creditor:

1) Creditor has a judgment against the corporation, and the corporation will be

__________________________________; OR

2) The corporation has admitted that it owes the creditor money, and the corporation will

be __________________________________.

CHAPTER 6: LIMITED LIABILITY COMPANIES (LLCS)

A. Forming an LLC

1. Articles of Organization

o Like a corporation, and unlike a general __________________________________, forming

an LLC requires filing a document with the state.

o Must include:

▪ LLC's name

• The name must contain the words " limited liability __________________________"

or the abbreviation "L.L.C." or "LLC"

• Must be __________________________________ from other entities

• Cannot impersonate the __________________________________

▪ Address of the main office

▪ Name and address of ___________________________________________________

o Must update yearly with an ___________________________________________________

1. Members

o An LLC must have at least _________________ member(s).

o Assignment of a “membership interest”

▪ Is permissible

▪ Does not __________________________________ lead to member’s dissociation from

the LLC

▪ Does not give the transferee management rights

▪ Simply confers right to receive financial __________________________________

o Members have no right to distributions while the LLC _______________________________.


B. Managing an LLC

1. Who Manages

o By default, a Florida LLC is managed by its __________________________________.

o The __________________________________ agreement or the articles of organization may

specify that the LLC is to be managed by __________________________________.

2. Liability

o A member or manager typically _________________ liable for debts of the LLC.

3. Operation and Agreements

o An LLC's operation and agreements are generally more flexible than those of corporations.

o The general policy of LLC statutes is freedom of __________________________________

▪ The operating agreement is a __________________________________ that binds the

people associated with the LLC

Example 46: Four friends organize an LLC. They agree that one will contribute

significant money, another will contribute significant labor, and the third and

fourth will contribute nothing except occasional advice. By agreement, they all

will split the profits equally. This agreement is enforceable. The parties can

choose how their LLC is structured. They need not use "shares" like a

corporation.

Example 47: If one friend contributes advice and is a "member" of the LLC and

has a right to vote on management of the LLC, the operating agreement can still

state that the friend has no right to receive profits. There is no requirement

that a member hold an economic interest in the LLC. The operating agreement

can separate votes from money.

o Operating agreement can be oral, _________________, in a record, or any combination

Example 48: Two friends organize an LLC and file a standard, minimal

document that says nothing about the structure of the organization. The

friends have agreed orally that one of them will manage the organization, while

the other is simply an investor. This oral agreement, assuming that it can be

proven, is enforceable.

C. Authority

• Operating agreement can grant authority

• In a member-managed LLC, each member is an _________________of the LLC.

• In a manager-managed LLC, members are NOT agents; the ______________________________

are agents.


Example 49: Two friends set up an LLC and say nothing in the operating

agreement about how it is to be managed. It is, by default, a member-

managed LLC, and each member is, by default, and agent of the LLC.

Example 50: Two business partners set up an LLC with the two of them as

members. In the articles of organization, they declare that it is to be manager-

managed and hire a manager. The two members do not have, by default, the

power to act as agents of the LLC.

• LLC may also file a Statement of __________________________________ to give notice of

agency rights

D. Fiduciary Duties

• In a member-managed LLC, the __________________________________ have fiduciary duties

of care and loyalty.

• In a manager-managed LLC, the __________________________________ have fiduciary duties

of care and loyalty.

1. Duty of Care

o Refrain from gross negligence, recklessness, _________________________________ or

________________________________ misconduct, or a knowing violation of law.

2. Duty of Loyalty

Note 2: The statute was recently changed to list what the duty of loyalty "includes" rather than purporting to be an exhaustive list.

o The duty of loyalty includes:

▪ Holding LLC property in trust, including business opportunities

▪ Not dealing as an "_________________" party to the LLC, unless various requirements

of fairness are met

▪ Not __________________________________ with the LLC

3. General Duty of Good Faith and Fair Dealing

Arises from the general contractual nature of the LLC and the associated contractual duties

between the members of the LLC

4. Operating Agreement

Can alter most duties so long as not "__________________________________ unreasonable"

Example 51: Two friends set up an LLC and say nothing about how it is to be

managed. It is a member-managed LLC. If one friend sets up a competing

business, that violates the duty of loyalty by default. The operating agreement

can waive this requirement by saying that the members are free to compete

with the LLC. This agreement is likely not manifestly unreasonable.


E. Dissociation

• Members _________________ leave an LLC at any time, even if wrongful

Editor's Note 5: Professor Bayern misspeaks here slightly. An operating agreement may not entirely prevent dissociation. It may only specify conditions that make a dissociation wrongful. A person who wrongfully dissociates as a member is then liable to the LLC and to the other members for damages caused by the wrongful dissociation.

• By default, dissociating from an LLC _________________ automatically trigger a buy-out right.

F. Merger

• LLCs may merge with each other or with other types of business entities.

• Dissenting members may have __________________________________ rights (i.e., the right to

receive fair value of interest instead of being locked into the merger).

G. Dissolution

• LLCs may voluntarily dissolve.

• Judges may also _________________ dissolution.

Example 52: One member sues because the LLC is deadlocked and cannot

carry on its business.

o The operating agreement _________________ override this power of judges.

H. Conversion

• Other business entities may convert to an LLC, and vice versa, subject to statutory procedures.

CHAPTER 7: NOT-FOR-PROFIT AND SOCIAL BENEFIT CORPORATIONS; OTHER BUSINESS TOPICS

A. Not-for-Profit Corporation Basics

• Like regular corporations, but with a different purpose and structure

1. Creation

o Filing articles of __________________________________, which must contain:

▪ Name

• Required: “corporation,” “incorporated,” “Corp.” “Inc” or similar

• Prohibited: “Company” or “Co.”

• Allowed: “Cooperative” or “co-op”

▪ Address

▪ Purpose: May be any lawful purpose "not for _________________ profit"

▪ Method of electing directors

▪ Address of registered _________________


▪ Name and address of each __________________________________

2. Structure

o There must be at least _________________ directors in a not-for-profit.

o A not-for-profit does not have __________________________________; instead it has

__________________________________.

▪ Rights are more limited, include the right to (i) elect a board of directors, and (ii) inspect

and copy records

o The organization _________________ carry on commercial activities.

o May not make financial __________________________________ to members, directors, or

officers

▪ Can pay reasonable __________________________________

Example 53: A not-for-profit corporation is set up to promote research into a

disease. The organization may set up an online store that sells merchandise,

and it could even have large-scale operations like a disease-related theme park.

But the members may not receive dividends from the corporation. The CEO of

the organization can be paid a market wage, which could be quite large if the

organization is complicated.

o On dissolution, must adopt a plan providing for the distribution of assets

▪ Theoretically, this can include distributions to members.

o If it qualifies under statute, a regular, for-profit corporation can _________________ to a

not-for-profit corporation

3. Operation

o The frequency of member meetings and requirements of notice may be set by the

__________________________________ or __________________________________.

o By default, special member meetings may be called by

▪ The __________________________________;

▪ The chair of the board of directors;

▪ The board of directors;

▪ Other officers or persons as are provided for in the articles of incorporation or the

bylaws;

▪ The holders of at least _________________ percent of the voting power of a

corporation when one or more written demands for the meeting, which describe the

purpose for which the meeting is to be held, are signed, dated, and delivered to a

corporate officer


B. Benefit and Social Purpose Corporations

• Organizations that do make money and can make __________________________________ to

shareholders

• Declared under statute to do more than purely make money

1. Benefit Corporation

o Under Florida statutes, a benefit corporation "has the purpose of creating a general

___________________________________________________."

▪ The articles may also specify a __________________________________ public benefit.

Example 54: A company organized as a Florida benefit corporation can specify

in its articles that one of its purposes is to preserve Florida's natural

environment.

o Must prepare an annual __________________________________, which describes how the

company has pursued its public benefit

o The directors must consider the following factors:

▪ Values of shareholders;

▪ Value to ___________________________________________________;

▪ Customers;

▪ Community and societal factors;

▪ The local and global ___________________________________________________;

▪ The short-term and long-term interests of the benefit corporation; and

▪ The ability of the benefit corporation to accomplish its general public benefit purpose

and each of its specific public benefit purposes laid out in its charter

o The corporation, directors individually, and those who own at least _________________ of

the shares may _________________ to enforce the corporation's pursuit of public benefits.

2. Social Purpose Corporation

o Similar to benefit corporations, but have ________________________ requirements for

directors to consider

o The directors must consider:

▪ ___________________________________________________; and

▪ The ability to accomplish its public benefit or any specific public benefit purpose.

C. Other Business Topics

1. Definitions

o A close corporation (or closely held corporation) is a corporation with relatively few

__________________________________.


o A foreign corporation is incorporated in another state.

▪ It is domestic when it is incorporated in __________________________________.

▪ A foreign corporation must __________________________________ with the state of

Florida before doing business in Florida.

• If it fails to do so, it cannot _________________ in Florida courts.

o A professional corporation or LLC is a corporation or LLC that provides

__________________________________ services.

▪ Must be a member of the applicable profession to be a shareholder or member

2. Federal Taxation Issues

o For tax purposes, a corporation is by default a "_______" corporation, which means that it is

taxed as a corporate entity.

▪ The corporation pays tax on its income, and shareholders may have to pay again when

they receive dividends (i.e., double taxation).

o Under some circumstances, a corporation may elect to avoid this “double taxation” and

choose to be taxed like a partnership; if it does this, it becomes an “________” corporation.

▪ "S" corporations have "__________________________________" tax status:

• The corporation does not pay its own taxes

• Shareholders, in proportion to their holdings, receive the income and declare it on

their own tax returns.

▪ To qualify for this “__________________________________” status, a corporation:

• Can have no more than _________________ shareholders;

• The shareholders may include only __________________________________ and

certain trusts and estates (not other corporations or partnerships); and

• The corporation may not have more than _________________ class of stock.

o LLCs have flexible taxation

▪ Under federal law, can choose taxation as a corporation, or can choose to be taxed

more like a partnership

• Single-member LLC: entity is ignored for tax purposes

• Multiple members: taxed just like a partnership as a "pass through" entity

▪ LLCs get the benefits of an _______ corporation without the same restrictions

[END OF HANDOUT]

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